Apollo Global Management has predicted that it will benefit from a rise in interest rates as the global economy recovers, underlining the scale of its move away from its private equity roots.

The company, which is in the throes of merging with its insurance affiliate Athene Holding, reported a record quarterly profit for the first three months of 2021 as rising equity markets lifted private equity valuations by 22 per cent since December.

Yet some analysts have warned that inflationary pressures created by a resurgent US economy could take the shine off the industry’s performance, especially if rising interest rates drag down equity markets while creating more attractive places for investors to put their cash.

“We’re preparing for, but not predicting, higher rates to come,” said the firm’s co-president, Scott Kleinman, pointing to opportunities that could be thrown up by any tightening in credit markets. “We believe that higher rates are a net positive for Athene and Apollo.”

The $29bn merger with Athene, announced in March, comes after Athene grew to become Apollo’s biggest client, accounting for about two-fifths of the company’s $461bn asset pile.

Athene could be among the beneficiaries of any tightening by the US Federal Reserve, said Apollo chief executive Marc Rowan, who in January was designated successor to founder Leon Black.

“We have an investment portfolio that has a decent amount of floaters in it on the Athene balance sheet,” he said, referring to variable-rate loans that generate more income for the insurance company as interest rates rise. “Higher rates can also help in pricing of new business.”

In the first quarter, however, it was that private equity division that propelled the investment group to a record quarterly profit of $1.5bn. “The first quarter was incredibly strong for Apollo,” Rowan added.

Like rivals Blackstone and KKR, Apollo has had the benefit of rising markets to erase the severe paper losses inflicted a year ago when coronavirus spread across the world and governments first shut economies down.

Apollo’s private equity investments were worth 67 per cent more at the end of March than at their nadir a year earlier. At that time, markets had fallen so far that the company calculated that if its portfolio were liquidated its staff would have to give back $390m in performance-related pay.

The merger with Athene follows Black’s resignation as chair and chief executive following the disclosure that he had paid $158m to Jeffrey Epstein, the late financier charged with sex trafficking, for professional and financial advice over a five-year period.

Under the deal, Apollo will shed a complex governance structure that gave Rowan, Black and their fellow co-founder Joshua Harris enormous sway.

Rowan has said he hopes the move will pave the way for his company’s inclusion in a wider range of stock market indices, unlocking demand for its shares from passive funds that have largely been prohibited from investing because of the unusual governance arrangements.

Apollo has also been adding independent directors to its board, including chair Jay Clayton, who until December was in charge of the US Securities and Exchange Commission.